Production halt at largest offshore field to reduce company's oil output

HONG KONG - Shares of CNOOC Ltd, China's largest offshore energy explorer, had their biggest decline in a month in Hong Kong trading after oil leaks at a field operated by partner ConocoPhillips Co forced the company to cut its output estimate.

The stock fell 8.9 percent to HK$13.84 ($1.78) on Monday. CNOOC has dropped 24 percent this year, outpacing the 14 percent decline in the benchmark Hang Seng Index.

CNOOC, owner of 51 percent of the Penglai 19-3 oilfield in Bohai Bay, said in a statement on Sunday that a shutdown ordered by the maritime regulator will cut its output by 40,000 barrels a day, on top of a 22,000 barrel-a-day loss since the leaks started. The Beijing-based company said it will set up a marine ecology fund to "better assume appropriate responsibility".

"If the site remains closed for the remaining months of the year, CNOOC's overall oil output will be cut by 1 percent," said Gordon Kwan, head of regional energy research at Mirae Asset Securities Ltd in Hong Kong. "CNOOC is on track to miss its annual production goal."

The leaks at the country's biggest offshore field have spilled 3,200 barrels of oil and fluids since June and contributed to CNOOC cutting its annual output forecast by as much as 34 million barrels. Xinhua News Agency said on Sunday that ConocoPhillips China Inc is "facing the wrath of the Chinese public" over its failure to stop the leaks.

The government on Sept 2 ordered the unit of Houston-based ConocoPhillips to halt production at its Penglai 19-3 oilfield after finding it still has not fully stopped the leaks. An estimated 870 square kilometers of Bohai Bay are seriously polluted from the spill.

The State Oceanic Administration's finding undercut a report that ConocoPhillips submitted to the regulator on Aug 31 saying it had sealed off the sources of the leaks. ConocoPhillips "has neither completely screened out the oil spill risks, nor completely sealed the sources of oil leakage", the regulator said in its statement.

"We are on track to complete the shutdown of the Penglai 19-3 field by today," Donna Xue, Beijing-based spokeswoman at ConocoPhillips, said on Monday. She declined to comment on the ecology fund or CNOOC's output estimate.

The shutdown will have an effect on production from the field, ConocoPhillips said in a statement on Sept 2, without specifying the size of any reduction. The company pumped an average of 56,000 barrels of crude a day from the field last year, or about 3 percent of ConocoPhillips' global output, according to the statement.

The 62,000 barrel-a-day cut in CNOOC's output is equivalent to 6.9 percent of the company's average global oil and gas production of 901,369 barrels a day last year.

CNOOC on Aug 24 cut its full-year oil and gas production target to 331 million to 341 million barrels, from a goal of as much as 365 million barrels set in January. Oil and gas production accounts for 99 percent of its income.

Bloomberg News